Deal for Westmont surgery center falls through

A deal for Advocate Health Care and a north suburban ambulatory surgery center operator to buy a majority stake in a Westmont facility has fallen apart, with some of the sellers jumping to the DuPage Medical Group Ltd. physicians practice.

A joint venture of the Downers Grove-based hospital network and the Deerfield-based company last year signed a nonbinding letter of intent with physician-shareholders of Salt Creek Surgery Center to buy a 51 percent stake in the center for $7 million, according to an application filed with the Illinois Health Facilities and Services Review board, which had to approve the sale.

A deal with Advocate, the largest hospital network in Illinois with 12 hospitals, would have bolstered Surgical Care's presence in the Chicago area. The company has 173 locations nationwide, but only five in the state. The company has affiliation deals with 42 hospitals and health systems nationwide.

But Surgical Care and Advocate on Sept. 16 withdrew the application to the state, an Advocate spokeswoman said.

Salt Creek is owned by 32 physicians, with half of them also members of Downers Grove-based M&M Orthopaedics Ltd. In July, M&M's physicians, including the 16 with stakes in Salt Creek, joined DuPage Medical, which is the largest independent physicians' group in the Chicago area, with more than 370 doctors. The 16 doctors collectively own a narrow majority stake in the surgical center, according to the application.

It could not be determined why the deal collapsed or which party terminated the nonbinding agreement.

NONCOMPETES 'UNCOMFORTABLE'

But one sticking point may have been a proposed noncompete clause, which would have prohibited the physicians from participating in any competitive business within 10 miles of Salt Creek while they worked for the outpatient center and for two years after they left.

“Covenants to not compete generally make people uncomfortable,” said health care attorney Mark Silberman, a Chicago-based partner with law firm Duane Morris LLP who was not involved in the deal.

Heightening the anxiety is the federal health care overhaul and other changes sweeping the industry. “People are somewhat reluctant to limit their future opportunities because they don't know how the changes will be implemented,” he said.

The terms of M&M's agreement with DuPage Medical were not disclosed.

DuPage Medical CEO Michael Kasper declined to comment. Dr. Steven Mash, president of Salt Creek's board of managers and secretary of M&M, did not return calls to comment.

The Advocate spokeswoman said the hospital network will continue to pursue opportunities with Surgical Care but declined to comment on the termination of the Salt Creek transaction. Richard Sharff, general counsel of Surgical Care, with an operations center in Birmingham, Ala., also declined to comment.

The deal's collapse is an exception to the broader trend in which surgical centers such as Salt Creek are increasingly partnering with health systems so they don't lose out on patient referrals, said Scott Becker, a Chicago-based chairman of the health care practice at law firm McGuire Woods LLP.

“Most of the surgery centers have tried to move toward closer alignment with hospitals,” said Mr. Becker, who was not involved in the deal.

New payment models such as accountable care arrangements, in which reimbursements reward providers for keeping patients healthy rather than merely paying for services, also are driving the trend, he said. Surgical center owners also hope hospitals' greater clout with insurers will help them boost reimbursements in contract negotiations.